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Composition of Capital Flows: A Survey

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  • Koralai Kirabaeva
  • Assaf Razin

Abstract

We survey several mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). We focus on information frictions such as adverse selection and moral hazard, and exposure to liquidity shocks, and discuss the following implications for composition of capital flows: 1. home court information advantage; 2. panic-based capital-flow reversals; 3. information-liquidity trade-off in the presence of source and host country liquidity shocks; 4. moral hazard in international debt contracts; and 5. risk sharing role of domestic bonds in the presence of home bias in goods and equity.

Suggested Citation

  • Koralai Kirabaeva & Assaf Razin, 2010. "Composition of Capital Flows: A Survey," NBER Working Papers 16492, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16492
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    Cited by:

    1. Xingwang Qian & Andreas Steiner, 2014. "International Reserves and the Composition of Foreign Equity Investment," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 379-409, May.
    2. Bacchetta Philippe & Benhima Kenza, 2010. "The Demand for Liquid Assets, Corporate Saving, and Global Imbalances," Cahiers de Recherches Economiques du Département d'économie 10.12, Université de Lausanne, Faculté des HEC, Département d’économie.
    3. M. de Sola Perea & Ch. Van Nieuwenhuyze, 2014. "Financial integration and fragmentation in the euro area," Economic Review, National Bank of Belgium, issue i, pages 99-125, June.
    4. G. Andrew Karolyi & David T. Ng & Eswar S. Prasad, 2013. "The Coming Wave," Working Papers 082013, Hong Kong Institute for Monetary Research.

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    JEL classification:

    • F3 - International Economics - - International Finance

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